Question

The General Store at State University is an auxiliary bookstore located near the dormitories thatsells academic supplies, toiletries, sweatshirts and T-shirts, magazines, packaged food items, and canned soft drinks and fruit drinks. The manager of the store has noticed that several pizza de-livery services near campus make frequent deliveries. The manager is therefore considering selling pizza at the store. She could buy premade frozen pizzas and heat them in an oven. The cost of the oven and freezer would be $27,000. The frozen pizzas cost $3.75 each to buy from a distributor and to prepare (including labor and a box). To be competitive with the local delivery services, the manager believes she should sell the pizzas for $8.95 apiece. The manager needs to write up a proposal for the university's director of auxiliary services.

1. If she sells 9,600 pizzas in the first semester, how much will her fixed costs be? (rounded to the nearest whole number)

a. $54,000

b. $63,560

c. $9,560

d. $64,440

e. $10,440

f. $27,000

2. If she sells 7,200 pizzas in the first semester, how much will her total revenue be? (rounded to the nearest whole number)

a. $27,000

b. $63,560

c. $9,560

d. $54,000

e. $64,440

f. $10,440

3. If she sells 7,200 pizzas in the first semester, how much profit will she make? (rounded to the nearest whole number)

a. $54,000

b. $63,560

c. $9,560

d. $10,440

e. $27,000

f. $64,440

4. How much will total revenue be at the break even point? (rounded up to the next whole number)

a. $27,002

b. $0

c. $46,472

d. $19,028

e. $64,440

5. Determine how many pizzas would have to be sold to break even. (rounded up to the next whole number)

a. 3,017

b. 5,193

c. 7,200

d. 27,000

e. 2,126

Answer 1

Solutions:

1. The fixed cost doesn't change with change in sales. It will be constant the cost of oven and freezer $27,000

Answer is option (f)

2. if she sold 7200 pizzas @ $8.95 revenue will be = 7200*8.95 = $64,440

Answer is option (e)

3. Profit she made = total revenue - cost of goods - fixed cost

=(7200 * 8.95) - (7200 * 3.75) - 27000

= 64440 - 27000 - 27000

= $10,440 profit

Answer is option (d)

4. At Break even point profit = 0

let no.of units to be sold at breakeven point be X

=> X * 8.95 - (X * 3.75) - 27000 = 0

=> 5.2X = 27000

=> X = 27000 / 5.2 = 5193 units

revenue will be 5193 * 8.95 = $46,477

Answer is option (c) nearest option

5.

At Break even point profit = 0

let no.of units to be sold at breakeven point be X

=> X * 8.95 - (X * 3.75) - 27000 = 0

=> 5.2X = 27000

=> X = 27000 / 5.2 = 5193 units

answer is option (b)

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